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Markets were mixed this week, with small and mid-cap stocks gaining while large cap stocks were mostly unchanged. Tax reform once again dominated headlines: the House passed its version of the legislation, while the Senate bill advanced out of the Finance Committee on a party line vote; the Senate may schedule a vote in two weeks. Retailers outperformed; Wal-Mart’s digital and e-commerce initiatives helped produce a +2.7% increase in same-store-sales, the company’s best quarterly performance since 2009. Traditional “brick-and-mortar” retailers are figuring out how to use their physical stores as an advantage in gaining, and retaining, customers in an increasingly online world. Energy-related stocks were relative laggards as weekly inventory levels unexpectedly rose; crude oil prices, though, held firm for the week. Meanwhile, economic data remain broadly positive. A better-than-expected industrial production report confirmed the accelerating momentum in the industrial economy; and, solid housing and retail sales data point to ongoing strength in the consumer economy.
In addition to the potential for tax reform, deregulation remains a meaningful driver for improved business confidence. This week, the Senate discussed a bipartisan agreement to relax several banking regulations enacted following the 2008 financial crisis. Included among these was a higher threshold for the designation of Systemically Important Financial Institution (SIFI) which triggers more strict regulatory oversight; mid-sized, regional banks, in particular, would stand to benefit from the proposed change. On Wednesday, Consumer Finance Protection Bureau (“CFPB”) Director Richard Cordray announced that he would resign at the end of the month. His replacement, which would be appointed by President Trump, may well revisit the Bureau’s mission.
Third quarter earnings season is nearing an end; thus far, 480 companies in the S&P 500® Index have reported results. Of these, 67% have met or exceeded analysts’ sales estimates while 82% have met or exceeded analysts’ earnings per share (EPS) estimates. Sales are now expected to have increased 5.9% for the quarter, while earnings are expected to have gained 6.3%. Excluding insurance companies, whose earnings were severely impact by Hurricanes Harvey and Irma, EPS would have increased by more than 10%. Early estimates for the fourth quarter anticipate EPS growth of 9.9% on a 6.3% expansion in sales. Indeed, corporate earnings momentum appears to be accelerating heading into 2018.
Due to next week’s holiday-shortened schedule, we will not publish a Weekly Recap.